Game over? Anglo pulls out of Pebble

Post date:

Thu, 09/19/2013 - 11:21am

Photo/Andrew Jensen/AJOC

The future of the Pebble mine is in doubt after the major backer of the project pulled out Sept. 15.

Northern Dynasty Minerals Ltd. CEO Ron Thiessen and Pebble Limited Partnership CEO John Shively said they will press forward with the Pebble project west of Iliamna Lake despite the withdrawal of Anglo American Plc, a major London-based mining company that was a 50 percent partner in the effort.

“Despite our belief that Pebble is a deposit of rare magnitude and quality, we have taken the decision to withdraw following a thorough assessment of Anglo American’s extensive pipeline of long-dated project options,” said Mark Cutifani, CEO of Anglo American, in a formal statement Sept. 16.

“Our focus has been to prioritize capital to projects with the highest value and lowest risks within our portfolio, and reduce the capital required to sustain such projects during the pre-approval phases of development as part of a more effective, value-driven capital allocation model.”

Thiessen said he will soon be in talks with other potential partners including Rio Tinto, another mining major, which owns 19 percent of Vancouver-based Northern Dynasty and now, by extension, 19 percent of the Pebble prospect.

Rio Tinto may have its own ideas about Pebble, however. In 2012 the company’s president, Tom Albanese, said he was concerned with plans for a large surface mine at Pebble, and had expressed those views to Anglo American. Albanese’s remarks were reported at the time in mining trade publications.

During an investor conference call Sept. 16 to discuss Anglo American pulling out of the project, Thiessen said, “It’s no big secret that Northern Dynasty has felt the project will ultimately be developed by a consortium of mining and smelter and refining companies,” possibly including Chinese companies although he noted that sort of investment interest was for “offtake” in the post-permitting stage.

Shively told the Journal in July, and Thiessen reiterated Sept. 16, that the plan was to initiate permitting before the end of 2013. During the investor call, Thiessen said the company will have to “review that timing.”

The Anglo American announcement was received enthusiastically by opponents of Pebble, including the CEO of Bristol Bay Native Corp., the Alaska Native regional corporation for the area that has taken an official position against the project.

“We have said for a long time that this would be the wrong mine in the wrong place. Our shareholders and the people of Bristol Bay overwhelmingly oppose the Pebble project,” said BBNC CEO Jason Metrokin in a formal statement. “We are glad that Anglo American has recognized that the proposed mine is too risky, and we urge Northern Dynasty Minerals to do the same.

“Today’s announcement is a positive development, but it remains important for the Environmental Protection Agency to take action to protect the fishery and water resources of the region and the economic and subsistence values that depend on those resources.”

The EPA is still finalizing its watershed assessment for Bristol Bay that used a hypothetical mining scenario to analyze the risks of a mine in the area. Prior to the Anglo American announcement, opponents noted the deluge of comments that have been filed asking the EPA to preemptively use its authority under the Clean Water Act to prohibit mining activity in the region.

“I can’t think of a development project in the state’s history that has faced such wide and deep opposition from the citizens of Alaska, and so it’s no surprise that Anglo American announced its withdrawal from the Pebble project after 84 percent of Alaskans who commented to the EPA supported action to protect Bristol Bay,” said Trout Unlimited Alaska Program Director Tim Bristol. “Bristol Bay is one of the greatest sport and commercial fishing habitats on the planet, and the EPA should act now to protect it and the more than 14,000 jobs it supports.”

Thiessen said he didn’t believe a recent visit by new EPA Administrator Gina McCarthy played into Anglo American’s decision.

Thiessen pointed to the timing of 2014 budgeting, and suggested that Anglo American decided to pull the plug on its involvement at Pebble rather than commit any additional funding for next year.

As a junior mining company, Northern Dynasty needs a major mining company partner or partners to advance the project through permitting and ultimately to development.

In 2007, Anglo American committed to fund $1.5 billion toward development of Pebble to earn a 50 percent ownership stake. As of mid-2013 the company had invested just over one-third of that, or about $541 million. The 2013 budget for the project was $80 million.

As of the Sept. 16 call with investors, Thiessen said Northern Dynasty has about $22 million in cash on hand, which at current outlays would fund five years of spending. However, he also said that permitting costs were projected at between $30 million and $50 million per year. Funding the permitting process would require some kind of financing or other major partners.

Pebble Partnership CEO Shively said the project will continue to move ahead.

“Development of the mineral resources at Pebble, with our stated commitment to co-exist with the fishery, remains an important project for Alaska,” Shively said in a formal statement. “The project, when developed, will generate almost 1,000 direct Alaskan jobs, nearly $200 million in annual revenue for the state and local governments, and over $1 billion in annual economic activity.

“We will continue working with Northern Dynasty Minerals to move the project forward and we will share additional information about the way forward in the days and weeks ahead.”

After Anglo American gave notice it was withdrawing under the Pebble Limited Partnership agreement, a 60-day withdrawal period will follow as terms are negotiated.

In its Sept. 16 announcement, Anglo American told investors it expected to take a $300 million post-tax charge related to the withdrawal before the end of 2013.

“On withdrawal Anglo retains zero interest in the partnership, with no equity. It was all or none. They had to stay in for entire project or walk away with nothing,” Thiessen said.

The two companies have been engaged in development planning and environmental research on Pebble for several years but the location of the project, in a major salmon habitat region, has stirred major controversy in Alaska.

The two partners were close to finalizing a description of how the mine could be built to be submitted with permit applications, and Thiessen said that work will continue.

Thiessen took an upbeat view, despite the bad news.

”For Northern Dynasty, it means we’re back in 100 percent control of the project,” he said. “More than $540 million has been spent by Anglo, and that benefits us. We have a great database, and we are 99 percent complete on a project description.”

Pebble is one of the largest mineral deposits in the world. It has 81 billion pounds of copper, 5.6 billion pounds of molybdenum and 107 million ounces of gold, according to Northern Dynasty’s website.

Pebble Partnership Vice President for Communications Mike Heatwole said there is no immediate impact on operations at the mine site.

“There not a lot of change right now. At the project site there are drill rigs still working. However, we will obviously be taking a serious look at what our next steps will be,” Heatwole said in an interview.

The project budget for 2013 was $80 million, but whether all of that will now be spent, “is now a matter of some discussion,” Heatwole said.

The drilling program was planned to continue until the second week of October and that will continue, he said. There are about 54 people working at the project site and another 20 in Anchorage, he said.

Northern Dynasty’s board hasn’t met to discuss the next steps, but Rio Tinto’s ownership share of Northern Dynasty now makes that company a key player, owning 19 percent overall of Pebble through its share of Northern Dynasty.

“We will be keeping the limited partnership structure in place (absent Anglo American) certainly for the near future, in the event that another company might see fit to join the structure,” he said.

“There have been lots of discussions over the years with various parties, including the potential participation of ‘downstream’ smelter companies,” including Chinese companies. There might be a renewal of interest with Anglo having withdrawn.”

Thiessen said Northern Dynasty is now going through the draft of the project description.

“I think it’s very close to a finished product,” he said.

Thiessen also said he believes Anglo made its decision following a major review of the project started last summer, but that Northern Dynasty wasn’t made aware of the decision to withdraw until Sept. 13.

Having the project now back under Northern Dynasty’s control is important, because Northern Dynasty’s costs of doing things may be less than those of Anglo American, Thiessen said.

“When you’re dealing with another mining company, their protocols and requirements, things are more expensive,” he said.

Other than Sen. Lisa Murkowski, who earlier this year called on the Pebble Partnership to finally release its mine plan, the rest of Alaska’s Congressional delegation declined to weigh in on the announcement.

“Anglo American’s choice to withdraw from development of the Pebble mine was a private business decision driven by a variety of economic factors,” Murkowski said in a formal statement. “The company has stated its reasons and I have no reason to question the decision. Mining is an important part of our state’s economy and I continue to believe that Alaska’s resources can be developed responsibly for the benefit of all.”

Resource Development Council of Alaska Executive Director Rick Rogers said his organization was “disappointed” to hear Anglo American’s announcement.

“We recognize that it’s a global marketplace for capital, and this just demonstrates once again that Alaska projects need to compete globally to receive sanctioning to move forward,” he said. “The rocks are still in the ground. It’s a very promising project, so hopefully down the road there will be others willing to step up.”